China's unchanged LPR policy triggers AUD pullback despite positive Australian credit data
Market anticipates potential RBA rate cuts in 2025 as economic indicators show mixed signals
Technical analysis reveals AUD/USD trading near oversold territory with key support levels in focus
The What is the use of Solana in real life?Australian currency experienced notable volatility this week, initially gaining ground before surrendering those advances in response to monetary policy developments from China. Market participants closely monitored the People's Bank of China's (PBoC) quarterly meeting, where officials elected to maintain both the one-year and five-year Loan Prime Rates at 3.10% and 3.60% respectively. This status quo decision came despite growing expectations for additional stimulus measures to bolster China's economic recovery.
Domestic economic indicators presented a more nuanced picture for the Australian economy. November's Private Sector Credit figures showed a 0.5% monthly expansion, matching analyst projections. This maintained the positive momentum from October's 0.6% increase, which represented the most robust monthly growth since June. Year-over-year credit expansion accelerated to 6.2%, reaching its highest level in eighteen months.
Currency traders appear increasingly convinced that Australia's central bank may initiate monetary easing sooner than previously expected. The Reserve Bank of Australia's (RBA) current 4.35% cash rate could potentially see reductions as early as February 2025, according to market pricing. This sentiment has been fueled by recent economic data suggesting slowing growth momentum, with market participants eagerly awaiting the release of the RBA's latest meeting minutes for additional policy clues.
Across the Pacific, the US Dollar found support from stronger-than-anticipated economic performance. Third quarter GDP figures surprised to the upside with a 3.1% annualized growth rate, exceeding both consensus estimates and the previous quarter's 2.8% expansion. Labor market data also impressed, with weekly Initial Jobless Claims dropping to 220,000 - significantly below both the prior week's 242,000 and market forecasts of 230,000.
Global bond markets react to Fed's policy pivot
Australian sovereign debt instruments mirrored movements in US Treasuries following the Federal Reserve's latest policy decision. The yield on Australia's 10-year government bonds hovered near 4.52%, reflecting similar upward pressure seen in US benchmark rates. This came after Fed officials delivered what markets interpreted as a 'hawkish' 25 basis point rate reduction, bringing the target range to 4.25%-4.50%.
Consumer inflation expectations in Australia climbed to 4.2% in December, marking the highest reading since September and up from November's 3.8% figure. This development may complicate the RBA's policy calculus as it balances inflation containment against growing signs of economic softness.
The Fed's updated economic projections revealed a more gradual approach to future rate reductions than previously anticipated. The so-called 'dot plot' now indicates just two potential cuts in 2025, down from four projected in September. Chair Powell emphasized during his press conference that the central bank would proceed cautiously with any additional easing, particularly while inflation metrics remain stubbornly elevated above the 2% target.
Analysts at National Australia Bank maintain their baseline forecast for the first RBA rate cut to occur in May 2025, though they acknowledge an earlier February move remains possible. Their research suggests Australia's unemployment rate may peak at 4.3% before gradually declining to 4.2% by 2026 as economic conditions stabilize. Inflation projections indicate a gradual moderation, with the trimmed mean measure expected to reach 2.7% by late 2025.
Consumer sentiment data provided additional evidence of economic headwinds, with Westpac's December confidence index declining 2% to 92.8 points. This reversal followed two consecutive months of improvement, suggesting Australian households remain cautious amid economic uncertainty.
US economic data continued to show resilience, with November Retail Sales expanding 0.7% month-over-month, building on October's 0.5% gain. The Retail Sales Control Group, a more volatile measure, rebounded to 0.4% growth after contracting 0.1% previously.
Reports emerged this week suggesting Chinese policymakers are preparing to maintain their 5% economic growth target for 2025, unchanged from this year's objective. This information, attributed to sources familiar with discussions at last week's Central Economic Work Conference, indicates Chinese officials remain confident in achieving their current growth trajectory.
Capital flow data from China revealed significant November outflows, with the State Administration of Foreign Exchange reporting a $45.7 billion net reduction in portfolio investments. This marked the largest monthly deficit on record for this category, with $188.9 billion in receipts overwhelmed by $234.6 billion in payments.
Technical perspective: AUD/USD at critical juncture
As of Friday's trading session, the AUD/USD pair hovered near 0.6230, maintaining its position above the psychologically significant 0.6200 level. Chart analysis reveals the currency pair continues to trade within a well-defined descending channel, maintaining a bearish technical bias. However, the 14-day Relative Strength Index (RSI) reading below 30 suggests the pair may be approaching oversold conditions, potentially setting the stage for a near-term corrective bounce.
From a support perspective, market technicians identify the descending channel's lower boundary near 0.6130 as a critical level to watch. A breach of this support zone could signal additional downside potential for the pair.
On the resistance side, the nine-day Exponential Moving Average (EMA) at 0.6310 presents the first significant hurdle, followed by the 14-day EMA at 0.6346. The descending channel's upper boundary near 0.6390 looms as a more substantial technical barrier. A decisive breakout above this resistance cluster could potentially open the path toward retesting the eight-week high of 0.6687.
AUD/USD technical outlook
Traders continue to monitor the interplay between fundamental drivers and technical patterns as the AUD/USD pair navigates current market conditions. The currency's sensitivity to Chinese economic policy, combined with shifting expectations for RBA and Fed monetary policy, suggests continued volatility in the sessions ahead.
